China is the world’s most overheated stock market. So why are these top strategists calling it a buy?
- A technical gauge has risen to the level last seen in the 2015 crash that wiped out US$5 trillion in market value
- But this run ‘still has some gas left in the tank,’ respected forecaster says
The world’s most overbought stock market is not scaring China’s most accurate strategists.
Hong Hao from Bocom International Holdings and Chen Li, who formerly worked for UBS Group and Credit Suisse Group respectively, say the world-beating rally by Chinese stocks will continue, even as signs of overheating are omnipresent.
A technical gauge has risen to the level last seen in the 2015 crash that wiped out US$5 trillion in market value. The number of stocks entering the overbought territory on the mainland’s two exchanges is now the highest among the world’s markets.
“It’s getting into the technical overbought territory,” said Hong from Bocom International, who correctly predicted the 2015 boom-to-bust cycle on Chinese stocks. “But I think it still has some gas left in the tank.”
Hong brushed aside inauspicious technical signals that bode ill for stocks, saying factors that could further drive up equities include a re-acceleration in money supply growth, policy support from top leaders, a pickup in the economy and the progress made in the China-US trade talk.
The turnaround by Chinese stocks – Shanghai was the world’s worst performer in 2018 – has been quick this year, with the major equity gauges all entering bull markets in recent days after 20 per cent gains from their lows.